Oil 10
Facing up to a new reality... oil futures at $0 and below. Image Credit: Reuters

New York: The meltdown in oil markets widened, with huge losses spreading beyond contracts affected by technical anomalies as the world runs out of places to store unwanted crude.

West Texas Intermediate (WTI) crude for May delivery plunged below zero on Monday for the first time in history, but the panic selling spread to the June contract on Tuesday, which briefly dropped as much as 42 per cent to $11.79 a barrel.

The widening of the price collapse to futures that aren’t close to expiry underscored the severity of the crisis in the oil market. Storage tanks, pipelines and tankers are rapidly being overwhelmed by a vast oversupply caused by slumping fuel demand as countries are locked down to slow the spread of the coronavirus.

While negative prices should prove fleeting as WTI for May delivery expires on Tuesday, their psychological impact will endure, according to Olivier Jakob, managing director at Petromatrix.

Plunging June contracts for both the US and international crude benchmarks show producers will feel severe pain for some time to come.

“Once you have negative prices in crude oil, the limits change totally,” said Jakob. “What happened yesterday was extremely bad for the confidence in the futures market. It’s not just back to normal trading anymore. It’s a confidence breaker.”

WTI for June delivery recovered slightly and was down 24 per cent at 15.60 a barrel as of 5:55am in New York. The thinly traded May contract remained below zero, with a price of -$7 a barrel. Brent crude was down 21 per cent at $20.27 a barrel.